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Shale goal in sight: Profit, without hurting growth

Shale drillers are promising to add a new wrinkle to their world-shaking oil boom: they may finally make money.

In third-quarter earnings reports, explorers including Pioneer Natural Resources Co., EOG Resources Inc. and Anadarko Petroleum Corp. said they’re on the cusp of shrinking or even eliminating the gap between operating expenses and the cash they take in. That would mark a turning point for an industry that’s piled up losses and lived on borrowed money for years, as drillers plowed resources into developing new oil plays across the U.S.

The International Energy Agency acknowledged the U.S. boom’s resilience on Tuesday, predicting shale will be dominant in global markets for at least the next decade. If earnings forecasts are right, that dominance will come with a helping of fiscal discipline. Companies promised to heed investor calls for a hardened focus on dividends, buybacks and boosting stock prices.

To hear shale executives talk this earnings season “was to hear actors auditioning for the same part, reading the same lines from the same script,” said Dan McSpirit, a BMO Capital Markets Corp. analyst. “The story was about capital discipline or growth within cash flow or some variation of it.”

Among the biggest shale-focused producers, free cash flow – the money left after subtracting operating costs – are expected to rise in the coming quarters, according to analyst estimates tracked by Bloomberg.

The new “balanced operating model is in contrast to the industry’s historical behavior of chasing top line growth at the ultimate expense of shareholders,” Dave Hager, CEO at Oklahoma City-based Devon Energy, told analysts on Nov. 1. “We are absolutely committed to doing business differently.”